I lived and worked in Shanghai and Hong Kong for almost two decades and now write primarily on China, Asia, and nuclear proliferation. I am the author of two Random House books, The Coming Collapse of China and Nuclear Showdown: North Korea Takes On the World. My writings have appeared in The New York Times, The Wall Street Journal, Barron’s, Commentary, and The Weekly Standard, among other publications. I blog at World Affairs Journal. I have given briefings in Washington and other capitals and have appeared on CNN, Fox News, MSNBC, Fox Business, Bloomberg, CNBC, and PBS. I served two terms as a trustee of Cornell University.

The World's No. 1 Currency Trade . . . For Now

Add “currency expert” to Mark Cuban’s long resume.In December, the high-flying entrepreneur converted “every penny of debt” into yen-denominated loans.That was when the Japanese currency was trading in the 80s to the dollar.

Now, color Cuban happy.On Thursday, the greenback reached 100 yen for the first time in four years.Late Friday afternoon, screens showed the dollar at 101.382.

Now that we’ve seen 100, how about 150?That’s what Rebecca Patterson, Bessemer Trust’s chief investment officer, asked on Thursday in a CNBC commentary.

So far, the yen has been a one-way bet, falling about a third against the weak greenback since the end of September.On Friday, it hit a four-year low against the American currency, and it is now at a three-year low against the euro.

How’d that happen?Shinzo Abe, Japan’s new prime minister, has staked his career on ending two decades of recession and recession-like stagnation.“Aggressive” does not even begin to describe his plan.

“Abenomics” has a number of components, such as government spending and structural reform, but it is essentially the world’s boldest monetary experiment.On April 4, the Bank of Japan announced it would inject $1.4 trillion into the economy by the end of 2014, almost doubling the monetary base with its asset-purchase program.The Fed is purchasing more assets than the Japanese central bank—Bernanke is buying $85 billion a month versus $79 billion for Japan—but the Japanese economy is only a third the size of America’s.

Of course, one “side effect” of this massive money creation is that Mark Cuban is shrinking his debt because the yen is plunging.You would think struggling European and American governments would complain as their industries struggle to compete against a weak Japanese currency, but you would be wrong.

For one thing, everyone has been telling the Japanese to stimulate their economy and Abenomics, despite grim forecasts to the contrary, is working.Japan’s household spending in March rose at its fastest pace in nine years.At the same time, the country’s unemployment rate is at its lowest in four years and economists expect industrial production to pick up soon.On Friday, the Nikkei closed at 14,607.54, the highest level since January 2008.The index is up more than 40% this year.

Moreover, as Joe Sternberg of the Wall Street Journalreports, Japanese exporters have played their part in dampening foreign opposition by largely choosing not to cut prices.More important, Tokyo is playing the role of good global citizen by using its bulging reserves to buy American, European, and Asian bonds, thereby extending a helping hand.And the global community is not in a position to complain too loudly: many nations have been blowing up their money supply too.

In fact, the Group of Seven finance ministers wrapped up their latest meeting yesterday, and the Japanese walked away Scot-free on the currency issue.German Finance Minister Wolfgang Schaeuble said the discussions on the yen were “intense,” but Tokyo somehow convinced the six other nations that it is focusing on stimulating the domestic economy, not deliberately debasing its currency.

The other reason why Abe is getting a free pass is that six of the seven G7 nations are squeamish.As Olli Rehn, EU economics chief, said at the meeting, “It is important that in line with the previous decisions at the G20 and IMF that there is no talk about currency wars.”

G7 countries may want to avoid discussion, but we should not expect the Chinese to remain quiet for long.They have already been grumbling about Abenomics from the beginning, and now they have real reason to be concerned.The renminbi hit 16.588 yen on Friday, the strongest it has been since 1998.“Japanese exporters are now more competitive than they have been against their Chinese counterparts than at any point during this half generation,”said Michael Shaoul of Marketfield Asset Management to the Wall Street Journal.Expect “vociferous complaints,” he adds.

So far, the Chinese would seem to have little to complain about.Last week, the General Administration of Customs reported that exports climbed 14.7% in April, beating expectations by a wide mark.Yet that number was inflated by fictitious transactions to obtain VAT rebates and to smuggle renminbi.The real increase is more like an underwhelming 5.7%.

At the same time, China’s imports reportedly rose 16.8%.That’s another unreliable number.In short, trade transactions are being used to disguise “hot money” inflows.As Mark Cuban bets on the yen going down, investors see the renminbi headed higher and are putting their free cash into China.

Who doesn’t want more money?Answer: the Chinese.Beijing technocrats undoubtedly understand that the country could use the currency inflows to refinance construction debt, but that reason is not politically potent.

In a political system obsessed with keeping people employed, exporters are usually able to get what they want, and the strong currency has helped turn once booming manufacturing centers, like Guangdong province’s Dongguan, into Chinese Detroits.China is beginning to find out what it feels like to get burned by another country’s currency, and as Chinese trade numbers continue to deteriorate, the exporters should be able to get Beijing’s economic planners to challenge Abe’s debasement of the yen.

What can Beijing do about Abe’s grand plan? The Chinese, guilty of currency manipulation themselves, carry little weight in international councils on this issue, but they can resort to self-help.They can step up dollar purchases to weaken their currency, thereby punishing speculators who have been buying renminbi as if there’s no tomorrow.And as a last resort the Chinese can go into the markets and torpedo Abenomics by buying yen.

As the Wall Street Journal noted on Friday, the yen’s weakness is the “game-changer” for China.And China, unlike the G7, is not about to let Tokyo change the game without a fight.

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